Sunday, August 2, 2009

Common stock dividends

Dividends are the distribution of current profit and\or the retained earnings of the company to its owners. The declaration of cash or property dividends reduces total stockholder‘s equity as a result of either the distribution of an asset (cash or other property) or the incurrence of a liability (dividends payable if the dividend is not immediately distributed).
There are a number of different forms in which dividends can be paid, the most common of which is a cash dividend. However, in all of the different types of dividends, essentially the same thing is happening in that some asset of the company is distributed to the shareholders.
Companies often like to have a dividend that is constant over time because the payment of dividends is a better sign of stability within the company than earnings. This is because the payment of dividends represents a longer time frame than profit. Profit can be dramatically influenced by an individual or unusual event.

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